According to Al Brooks, what is the broad definition of a ‘gap’?
A gap is a space between the current price and any form of support or resistance.
Besides the high or low of prior bars, what are three other examples of support or resistance that can form a gap?
Any moving average, trend lines, and trend channel lines can form a gap.
What is the term for a gap that forms late in a trend and is likely to close, signaling a pause?
Exhaustion Gap.
Does an exhaustion gap necessarily mean a trend reversal will occur?
No, it just means the dominant side is exhausted and will likely pause for a few bars before resuming.
What is the traditional definition of a ‘gap up’ on a chart?
A gap up occurs when the low of the current bar is above the high of the prior bar.
A traditional gap down, where the high of a bar is below the low of the prior bar, is a sign of strong _____.
bears
On which chart timeframe are traditional gaps extremely uncommon, except in thinly traded markets?
Monthly charts.
What is the predictive value of traditional gaps that occur within a trading range?
They are usually meaningless and have no predictive value, as most breakouts in trading ranges fail.
What is a gap called when it occurs at the beginning of a new trend, breaking out of a trading range?
A breakaway gap or a breakout gap.
A gap that leads to a measured move, where the market reverses at the projected target, is known as a _____.
measuring gap
When is a gap definitively identified as a measuring gap?
Only in hindsight, after the market reverses at or near the perfect measured move target.
When a gap late in a trend closes, it is then referred to as an _____ gap.
exhaustion
What chart pattern consists of a gap down, followed by a trading range, and then a gap up?
An island bottom.
How does Al Brooks’ definition of an island top or bottom differ from the traditional textbook definition?
The gaps do not need to be at the same level, and trading can occur between the two gaps.
According to Al Brooks, what is the true importance of an island top or bottom pattern?
It is no more important than any other reversal pattern; the reversal itself is what matters, not the gaps.
What fundamental concept does Al Brooks use to equate trend bars with gaps?
Every trend bar is a breakout, a climax, and therefore also a gap.
How can a strong bull trend bar create a gap, even without a traditional space on the chart?
It creates a space (gap) between its closing price and prior support levels like the high of a previous bar.
A strong bull breakout bar has a higher probability of leading to a trend if it closes far above what?
It closes far above a lot of prior highs or other resistance, such as a bear trend line.
What is the minimum number of bars a trend should last before a bar completely on the other side of the moving average is considered a ‘moving average gap bar’?
The trend should last for 20 or more bars.
What does a moving average gap bar (e.g., a bar completely below the MA in a bull trend) indicate about the counter-trend side?
It indicates the counter-trend side (bears in a bull trend) is getting strong.
After a moving average gap bar appears in a bull trend and the trend resumes, there is a 60% chance the bears will get an attempt at a _____.
major trend reversal
When bears attempt a major trend reversal following a moving average gap bar in a bull trend, what is their probability of success in creating a swing down?
They have a 40% chance of getting a swing down.
In a bull trend that has been above the moving average for 20 or more bars, the first touch of the moving average is known as a _____ setup.
20 gap bar buy
What is the most likely outcome of the biggest trend bar of a move occurring 20 or more bars into that trend?
It is more likely to be an exhaustion gap, signaling the end of the trend, rather than a measuring gap.
